Rockford declared hottest housing market in U.S., but low supply is real story
Rockford recently made headlines as the nation’s hottest housing market, but the real story is low supply is driving up prices. Changing zoning laws could spur development that would ease the shortage and prices.
Rockford was deemed the hottest housing market in the nation by Realtor.com in December, but a look behind the numbers shows this is no indicator of economic vitality – just a symptom of inadequate housing supply.
A hot housing market is usually measured by how quickly a house sells. While a typical home stayed on the market for a median of 50 days across the nation, that number was closer to 43 days in Rockford. In Chicago, the median in December was 67 days. For New York City, the median was 73 days.
There are two potential explanations for this kind of movement in the housing market: booming demand or inadequate supply.
Booming demand happens when more people move into a city than are leaving, but that doesn’t seem to explain what’s happening in Rockford. Just over a decade ago, Rockford was described by Forbes as among the most miserable cities in which to live.
While Rockford made great efforts to improve its bleak reputation from the underwater mortgage capital to a real estate hot spot, improved infrastructure and expanding economic opportunity haven’t encouraged an inflow of new residents and can’t explain the uptick in housing prices. Some estimates show no major changes in Rockford’s population since 2020, while others suggest there may actually be a slight decrease.
The second potential explanation for higher housing prices is low housing supply. According to Realtor.com’s economic analysis, housing market speed can reflect a high demand for housing and relatively low inventory. This is a more likely explanation for what’s happening in Rockford.
Development of new housing slowed across the nation during the COVID-19 pandemic. While many states seem to be bouncing back, Illinois’ sluggish pace of residential housing development stands in stark contrast to the national trend. In 2023, Rockford issued permits for only 49 housing units. That’s about one unit for every 3,000 people who live there. The national average was nearly five units for every 1,000 residents.
When the supply of any good does not increase with demand, prices rise. Home prices dropped about 1.8% nationally, but in cities considered to have hot housing markets, prices grew 2.7%. In Rockford, median home prices rose by an astonishing 21% in 2024. For comparison, the second-highest median price increase was in Harrison-Carlisle, Pennsylvania, which experienced a 9.2% increase.
Despite the marked increase in price, Rockford’s homes remain comparatively affordable – for now. While the median list price of a home in Chicago was $335,000 in December 2024, it was $242,000 in Rockford. Rockford’s median home price is well below the state’s median at $282,500.
If current trends continue, Rockford might not remain a refuge of affordability for much longer. Plus, what’s happening in Rockford won’t stay to Rockford: Illinois leaders must recognize housing affordability is a statewide problem, and it requires statewide solutions.
Gov. J.B. Pritzker issued a recent executive order to promote housing development for working families that acknowledges the housing challenges faced by many Illinois families are fundamentally a matter of supply. Pritzker has correctly identified restrictive zoning laws and bureaucratic red tape as major contributors to Illinois’ housing shortage, but acknowledging the problem isn’t enough. The state must follow through with policies that encourage new development.
Three key solutions would reduce regulatory barriers that limit construction across the state:
1) Ease zoning regulations for multi-family housing
Across the U.S., it’s estimated that about 75% of land is restricted to single-family zoning. In Chicago, nearly 40% of land cannot be used for anything other than building a single-family home. Zoning laws should be updated to allow for greater flexibility. A higher number of units means more opportunities for housing and generally lower costs.
2) Permit accessory dwelling units without discretionary restrictions in major cities
Accessory dwelling units allow for increased density without changing the character of a neighborhood. Because of their smaller size, they’re naturally more affordable and can contribute to greater socioeconomic diversity and also support aging in place.
3) Allow for housing in commercial areas
Converting underutilized commercial properties into residential units, as seen in states such as California, could help meet demand without requiring new land development.
If Illinois’ leaders fail to act, Rockford’s rapid price increases will spread to other mid-sized Illinois cities, making home ownership less accessible for Illinoisans